Lloyds posts loss as PPI provisions hits earnings

MaxColchester

MargotPatrick

LONDON — Lloyds Banking Group PLC announced a narrower net loss for the year, but the bank’s management pledged to pay out big dividends on the back of surging demand for loans in the U.K.

The lender’s
LLOY, +5.18%LYG, +5.10%
full-year net loss came in at £838 million ($1.38 billion), compared with a net loss of £1.47 billion a year earlier, as revenue fell slightly £18.5 billion, excluding expenses claims. The bottom line was hit by a multibillion-pound provision to reimburse customers wrongly sold insurance products.

The bank “expects to apply to the regulator in the second half of the year to restart dividend payments at a modest level and to deliver progressive and sustainable payments to shareholders thereafter,” Chief Executive António Horta-Osório said in a statement Thursday.

The executive said the bank would pay out at least 50% of earnings in dividends in the medium term. Much depends on demand for loans; if it picks up then the bank will likely plow profits into funding the loans, rather than handing it back to investors, said Mr. Horta-Osório. This could then spur even higher dividends in the longer run as the bank’s profits rise, he said.

The bank is already showing improved profitability as its net interest margin—the difference between its cost of borrowing and the interest it rakes in from borrowers—rose, helping boost interest income 5%. Underlying profit—which strips out exceptional items including payment protection insurance provisions—for 2013 more than doubled around £6.2 billion, helped in part by asset sales. For the fourth quarter, underlying profit surged from a year earlier to £1.74 billion.

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